# Questions tagged [options]

A contract that gives the owner the right, but not the obligation, to buy or sell a security at a fixed price in the future.

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### What is delta of an option signaling?

In an interview I was once asked what the delta of an option was and my answer started from the fact that it is the first derivative of the option with respect to the price, and then I concluded ...
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### Alternatives to RDBMS for options backtesting

I've assembled a large dataset (~2B+ records) of options price data in MySQL for backtesting purposes. At a number of points, due to the sheer amount of data being retrieved and filtered, processing ...
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### How to price a risk reversal for common dice gain with chance to re-roll

I was just thinking about an extension to the common dice throwing interview expected value question: Question: Imagine a game where you throw a die and get a payoff equal to the number shown by the ...
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### Independent variable in pricing of strongly path dependent options

I am reading Paul Wilmott on quantatative finance where he discuss the pricing of strongly path dependent options.The payoff at expiry T depends on the path taken by the asset in the sense that it ...
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### How to derive the relationship between gamma and theta?

I am trying to derive this formula Θ = –0.5 × Γ × S^2 × σ^2 to see where it comes from. My thinking is that PnL = delta dS + Vdσ + 0.5Γ(dS)^2 + Θdt. Assume we delta hedged and vega hedged, first and ...
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### MOC or TAS mechanism to trade stock options?

Wonder if anyone can help. Is there a product or mechanism to trade cleared stock options at the settlement price, in the same manner to Market on Close orders or Trade at Settle on commodity markets?...
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### Computing the denominator of diluted earnings per share

I'm practicing for CFA level 1, and I faced this question. I don't understand the last part (802 − 481 = 321) because I understand that a company doesn't realize options of its own shares, if you are ...
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### What does it mean to be long the skew?

Consider an equity option such as SPY and I'm long the skew, do I make money if puts raise in price and calls decrease or the opposite?
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### How is delta defined as a unit?

This is going to be a embarrassingly basic question. But the answer seems to be hard to find. What does, say, selling, $d$ delta of calls mean? How is the "delta" defined? I am not asking ...
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### Best way to measure time to expiration for options?

From my reading it seems that only trading days should be accounted for when calculating time to expiration. On the other hand, I see that VIX is calculated using every day until expiration without ...
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1 vote
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### Early exercise American Options with Dividend

this is a basic question but I have not fully understood it. Let's say we have dividend paying stock (continuous dividend yield), when would we exercise the Option early? Since the Dividend yield is ...
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### What happens when you buy call options on a stock that does a stock split

suppose i say lyft in 2023 will be worth more then 50 per share (the current call price for the option). suppose im right and each share is worth 75, but in the interim lyft announces a 2-1 stock ...
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### Model independent (or reasonable assumption) bounds on OTM put price given an ATM call price

I am looking for model independent (or weak/reasonable assumption) bounds on price of a OTM vanilla put on strike $k1$, conditional on an observable price for a ATM call at some strike $k2$. I ...
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### How can we argue that the "economic" risk-neutral argument doesn't introduce arbitrage?

I am wondering why when use the "economic" risk neutral argument, we don't introduce arbitrage. By "economic" I mean an argument that doesn't use stochastic calculus or equivalent ...
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### Relationship between VIX and Vega

Assuming that all other factors (such as underlying price, strike price, etc.) remain unchanged, I want to see how a spike in VIX would affect the price of the average call option? Assume Vega is ...
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### How to measure accuracy of SABR volatility surfaces?

I would like to test how accurate are SABR volatility surfaces with respect to historical volatility over a given time period and for a specific equity index. Reading a few papers I realised that one ...
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### What happens to options on a SPACs unit class post deal closure?

SPAC unit share classes are typically structured as following: Unit = Stock + (1/5) Warrant When the SPAC deal closes the ticker changes and the unit converts to ...
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### Is there an equation that gives you the optimal spread width or strike prices when opening a vertical options spread?

On a specific leg, when going to open a spread is there an equation that can tell me at what strike price I should sell at and what strike price I should buy at? I look at this options calculator ...
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### Finite Difference Method in Greeks (Options)

I need a way to approximate the analytical formula of Greeks of a generic call option using the Finite Difference Method. For example, the FD method for Delta/Gamma is the following one: Now, I am in ...
1 vote
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### IV on FOP (futures options) being higher than IV on equivalent ETF

I've been observing that options on /es has a higher IV than the options on SPY even though they're both tracking the S&P 500. What causes this? Doesn't this mean that the options on /es is more ...
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### Exotics - Combination of different payoffs using Black-Scholes

I'm currently struggling with the derivation of a formula to price the following exotic option with Black-Scholes. The option has the maximum payoff of $(S_T-z)$ and $(y - S_T)$, where $S_T$ is the ...
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